US economy slows as shutdown continues

Updated
October 09, 2013 15:18:00

The US political crisis is not only shutting down government services, but also sending shivers down the country's economic backbone. The Dow Jones has fallen two percent in as many days. The deadline for the US to pay its existing bills is next week, and president Barack Obama has been trying to explain to American families just how devastating a debt default would be. At the same time, there's no sign of compromise from either side in the political debate.

SCOTT BEVAN: The US political crisis is not only shutting down government services, but it's also sending shivers down the country's economic backbone. The Dow Jones has fallen two per cent in as many days.

The deadline for the US to pay its existing bills - called raising of the debt ceiling- is next week and the president has been attempting to explain to American families just how devastating a debt default would be.

Barack Obama says Americans have fought too hard to come back from the worst recession in recent history to see interest rate rises and superannuation savings take a hit.

North American Correspondent Michael Vincent reports.

MICHAEL VINCENT: Republicans and Democrats are further apart than ever.

Today president Barack Obama spoke for 15 minutes and then took 50 minutes of questions at a White House press conference.

House Republican Speaker John Boehner, in response, spoke for four minutes and then took questions for less than two minutes.

President Obama:

BARACK OBAMA: Every American could see their 401Ks and home values fall, borrowing costs for mortgages and student loans rise and there would be a significant risk of a very deep recession, at a time when we're still climbing our way out of the worst recession in our lifetimes.

You know, the American people have already fought too hard and too long to come back from one crisis only to see a handful of more extreme Republicans in the house of representatives precipitate another one.

MICHAEL VINCENT: Barack Obama says since 2009, the US economy has created 7.5 million jobs, the housing market is healing and the deficit is coming down faster than at any time in the past 50 years.

BARACK OBAMA: So we got a lot of good things going for us but the uncertainty caused by just one week of this nonsense so far has caused businesses to reconsider spending and hiring. You've seen consumer confidence plunge to the lowest level since 2008. You've seen mortgages held up by thousands of homebuyers who aren't sure about the economic situation out there. And all this adds to our deficit, it doesn't subtract from it. So we can't afford these manufactured crises every few months.

MICHAEL VINCENT: And if he hadn't scared Americans enough, the president chose to use the words of business CEOs.

BARACK OBAMA: "Insane. Catastrophic. Chaos." These are some of the more polite words. Warren Buffett likened default to a nuclear bomb: a weapon too horrible to use.

MICHAEL VINCENT: More than a few commentators have likened this current political stand-off to the Cold War and mutually assured destruction, or MAD.

Earlier in the day, president Obama called Republican house speaker John Boehner to tell him again he would not negotiate.

John Boehner says Barack Obama is setting a precedent.

JOHN BOEHNER: Refusing to negotiate is an untenable position. And frankly, by refusing to negotiate, Harry Reid and the president are putting our country on a pretty dangerous path. Listen, there's never been a president in our history that did not negotiate over the debt limit. Never.

MICHAEL VINCENT: For Republicans, using the appropriations bills, or debt ceiling increases, to negotiate are a political tradition.

They argue that the president may have responsibility for the budget, but the house has responsibility for approving what gets paid for.

JOHN BOEHNER: At times like this, the American people expect their leaders to sit down and have a conversation. I want that conversation to occur now. What the president said today was: if there's unconditional surrender by Republicans, he'll sit down and talk to us. That's not the way our government works. Thanks, everybody.

MICHAEL VINCENT: With Wall Street investors selling down, the pressure on both sides in the Capital is only growing.

(Sound of American Broadcasting Company announcer and fanfare)

ANNOUNCER: World News with Diane Sawyer.

MICHAEL VINCENT: And then there's issues related to the shutdown that are literally breaking out.

DIANE SAWYER: Salmonella across 18 states in America, the CDC even taking a drastic step: calling in some of their disease detectives who were furloughed in the government shutdown.

MICHAEL VINCENT: The implications of this government shutdown haven't caused enough damage yet for either side to relent.